JUDGMENT
Dalip K. Kapur, J.
1. The petitioner, an advocate on the rolls of the State Bar Council of Madhya Pradesh, has instituted this writ petition to challenge a disqualification imposed on him under Section 288(4) of the Income-tax Act, 1961. It is necessary for the purposes of dealing with the various questions arising in the case, to first set out some of the relevant facts.
2. The petitioner filed a return of income in relation to the assessment year 1958-59 on 3rd September, 1958, in which he estimated his income to be Rs. 5,000. The Income-tax Officer assessed the income at Rs. 30,000 but on appeal, it was reduced to Rs. 20,000. The Income-tax Officer also referred the case to the Inspecting Assistant Commissioner under Section 274(2) of the Income-tax Act, 1961, for the purpose of imposing a penalty on the petitioner under Section 271(1)(c) of the Act, on account of concealment of particulars of his income. A penalty of Rs. 3,000 was imposed on the petitioner thereafter, by an order dated 12th March, 1965. On appeal by the petitioner, the Income-tax Appellate Tribunal, Bombay, affirmed this order. The petitioner sought a reference to the Madhya Pradesh High Court on the ground that Section 297(2)(g) of the Income-tax Act, 1961, was not attracted, but that reference was also unsuccessful. Thereafter, the Additional Income-tax Commissioner, Bhopal, passed an order under Section 288(4) of the Act on 26th February, 1971, disqualifying the petitioner from representing assesseds before the income-tax authorities for a period of two years. The petitioner appealed to the Central Board of Direct Taxes, but his appeal was rejected by an order dated 21st September, 1971. The petitioner has now challenged the decision of the Additional Income-tax Commissioner, Bhopal, as affirmed by the Central Board of Direct Taxes on various grounds in this writ petition.
3. Two main contentions have been raised on behalf of the petitioner to impugn the order disqualifying him. Firstly, it is submitted that Section 288(4) of the Income-tax Act, 1961, is ultra vires of Article 19 of the Constitution of India because it puts unreasonable restrictions on the rights of the petitioner to practice as an advocate. It is also submitted that neither the section nor the Act provide any guidelines for imposing the disqualification. It is submitted that Article 14 of the Constitution is also infringed. The second submission is that on a true construction of the Income-tax Act, 1961, the provisions of Section 288(4) of the Act are not attracted to the facts and circumstances of the case. In this connection, it is particularly pointed out that the return in relation to the assessment in question, i.e., 1958-59, was filed under the Indian Income-tax Act, 1922, and at that time the disqualification now imposable by Section 288(4) of the present Act did not exist. It is pointed out that the concealment made in the return and hence the act or omission which has led to the imposition of the penalty and consequential disqualification was committed before the Income-tax Act of 1961 was passed and hence the provision for imposition of the disqualification, which was provided for the first time by the Income-tax Act of 1961, should not be attracted to the facts and circumstances of this case. I shall presently deal with the various aspects of the question.
4. I shall first deal, shortly, with the contentions raised regarding the constitutionality of Section 288(4) of the Act. The said sub-section reads as follows :
” No person-
(a) who has been dismissed or removed from Government service after the 1st day of April, 1938; or
(b) who has been convicted of an offence connected with any income-tax proceeding or on whom a penalty has been imposed under this Act other than a penalty imposed on him under Clauses (i) and (ii) of subsection (1) of Section 271; or
(c) who has become an insolvent shall be qualified to represent an assessed under Sub-section (1), for all times in the case of a person referred to in Sub-clause (a), for such time as the Commissioner may by order determine in the case of a person referred to in Sub-clause (b), and for the period during which the insolvency continues in the case of a person referred to in Sub-clause (c).”
5. It will be seen that there are three different classes of persons who are dealt with by this provision. Firstly, there are persons who have been removed from Government service after 1st April, 1938. It is not doubted that this is a definite class. The second class is of persons against whom a penalty has been imposed under the Income-tax Act, 1961, other than a penalty provided for under Clauses (i) and (ii) of Sub-section (1) of Section 271. As a class this is also not indefinite. The third class is of persons who have become insolvent. This is also a reasonable and definite class.
6. The main submission made in this respect is that the second class is not definite in relation to the disqualification which has to be imposed. As far as dismissed Government servants are concerned, the disqualification is for all time. As far as insolvents are concerned, the disqualification is for the period of insolvency. But, as far as persons covered by Clause (b) are concerned the disqualification is discretionary and no guidelines appear as to the extent of the disqualification to be imposed. It is submitted that there can be a number of penalties under the Act of 1961, some of a minor character and some of a serious character. For example, it is contended
that a late payment of advance tax or a late payment of tax demanded after an assessment has been made can also be subjected to a penalty. For these defaults also, a person can be disqualified from representing assesseds in income-tax proceedings. The main contention, therefore, is that the classification made by Sub-clause (b) is not reasonable because persons practicing before the income-tax authorities can be subjected to penalties and can be disqualified irrespective of the nature of the penalty. It is further submitted that the period of disqualification is entirely discretionary and there is nothing in the Act to indicate as to what period should be imposed by the Commissioner for this purpose. Having stated these contentions, which I do not propose to deal with, unless I find that the petitioner fails on the second point, I now proceed to deal with the question whether the disqualification mentioned in Section 288(4) of the Income-tax Act, 1961, applies also to the facts of this case, where, on the facts, the disqualification is due to a concealment of particulars of income made before the Act of 1961 was passed.
7. In this respect, I have been referred to Sections 297(2)(f) and 297(2)(g) of the Act of 1961. There is a difference in the operation of the Act of 1961 in relation to penalty proceedings respecting assessments under the Indian Income-tax Act, 1922, depending on the time of completion of the assessment. If the assessment was made before 1st April, 1962, the penalty has to be initiated and imposed as if the Act of 1961 had not been passed, whereas in the case of assessments completed after 31st March, 1962, the penalty has to be initiated and imposed under the Act of 1961. It is submitted by the petitioner that there is no difference in the nature of the act or omission of the assessed which leads to the imposition of a penalty either under Section 297(2)(f) or 297(2)(g) and, therefore, a distinction in the nature or extent of the penalty brought about only by reason of the date of the assessment creates an unreasonable classification which is invalid because of Article 14 of the Constitution. It is, therefore, claimed that the provisions of Section 288(4) of the Act of 1961 should be held to be ultra vires in so far as they are attracted by Section 297(2)(g) to defaults committed earlier. It is also submitted that the court should prevent such an inconsistency in the application of the disqualification provision in the Income-tax Act, 1961. A reasonable construction should be placed on the various provisions of the two Acts to prevent an unjust operation of the law. Thus the petitioner should not be disqualified only by reason of the fact that his assessment for the year 1958-59 was completed after 31st March, 1962. Learned counsel’s contention in this behalf is that it is open to the Income-tax Officer to complete the assessment within a short time or a long time, and it is a mere matter of chance whether he completes the assessment before 31st March. 1962, or after that date. The petitioner should not be additionally punished merely because of the late completion of the assessment. I, therefore, first of all propose to examine the case law which has been placed before me on the proper interpretation of Section 297(2)(g) of the Income-tax Act, 1961,
8. The leading judgment on the application of Section 297(2)(g) is Jain Brothers v. Union of India, . In that case a writ petition had been instituted under Articles 226 and 227 of the Constitution to challenge the vires of Section 297(2)(g) of the Income-tax Act of 1961. The challenge was based on an alleged violation of Article 14 on the ground that the provision created two sets of assesseds and that classification was unreasonable. It was held by the Supreme Court that there was no discrimination involved. On this question, the Supreme Court held as follows :
” It is well-settled that in fiscal enactments the Legislature has a larger discretion in the matter of classification so long as there is no departure from the rule that persons included in a class are not singled out for special treatment. It is not possible to say that while applying the penalty provisions contained in the Act of 1961 to cases of persons whose assessments are completed after 1st April, 1962, any class has been singled out for special treatment. It is obvious that for the imposition of penalty it is not the assessment year or the date of the filing of the return which is important but it is the satisfaction of the income-tax authorities that a default has been committed by the assessed which would attract the provisions relating to penalty. Whatever the stage at which the satisfaction is reached, the scheme of Sections 274(1) and 275 of the Act of 1961 is that the order imposing penalty must be made after the completion of the assessment. The crucial date, therefore, for purposes of penalty, is the date of such completion.”
9. Thus, it. is not possible to hold that any arbitrary classification is involved in the application of the new Act to the case of the petitioner. Further, the judgment made it clear that the assessed was liable for the default mentioned in Section 28(1) of the Act of 1922, for which default the penalty mentioned in Section 271(1) of the Act of 1961 was to be imposed. In applying the new Act, it was held :
” Accordingly … in a case falling within that section in a proceeding for recovery of tax and penalty imposed under the Act of 1922, it is not required that all the sections of the new Act relating to recovery or collection should be literally applied, but only such of the sections will apply as are appropriate in the particular case and subject, if necessary, to suitable modifications. In other words, the procedure of the new Act will apply to cases contemplated by Section 297(2)(j) of the new Act mutates mutants.
Similarly, the provision of Section 271 of the Act of 1961 will apply mutates mutants to proceedings relating to penalties initiated in accordance with Section 297(2)(g) of that Act.”
10. I may also mention that later on in the judgment the court came to the view that in certain circumstances a larger penalty than could be imposed under the Act of 1922, could be imposed under the Act of 1961, in a case covered by Section 297(2)(g) of that Act. Thus, this decision would support the view of the department that if the disqualification under Section 288(4) is covered by Section 297(2)(g) and is a penalty for the purpose of that provision it can be imposed on the petitioner. I shall deal presently with the question as to whether the disqualification is a penalty covered by Section 297(2)(g).
11. I have been referred to V. S. Malhotra v. Commissioner of Income-tax, [1971] 81 I.T.R. 771 (M.P.). which was the case of the petitioner himself, as dealt with in the Madhya Pradesh High Court. It was held therein that Section 297(2)(g) of the Act of 1961 enabled the penalty under Section 271(1)(c) of that Act to be imposed in relation to the assessment year 1958-59. The afore-mentioned judgment of the Supreme Court was followed in this respect. I have also been referred to Kishanlal v. Commissioner of Income-tax, [1967] 64 I.T.R. 285 (M.P.). which is also a judgment of the Madhya Pradesh High Court, in which judgment it was held that the penalty mentioned in Section 271(1) of the new Act of 1961 could be imposed for the default mentioned in Section 28(1) of the Act for the assessment year 1960-61 or any earlier year. It was there also held that Section 297(2)(g) of the new Act provided not only the machinery for imposing the penalty mentioned in the Act of 1922, but even the penalty mentioned in the later Act could be imposed for defaults under the previous Act.
12. It is now necessary to refer to Section 297(2)(f) and (g) of the Income-tax Act, 1961. The said provisions run as follows :
“(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (hereinafter referred to as the repealed Act) . . ,
(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed;
(g) any proceedings for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act.”
13. It may be seen that as far as Clause (f) is concerned, the penalty proceedings are to be imposed and completed as if the Act of 1961 had not been passed. On the other hand, as far as Clause (g) is concerned, such penalty may be imposed under the later Act. The question is, what penalty can be imposed ? Does this penalty include the disqualification under Section 288(4) also ? If so, then it can be imposed on the petitioner also ; but if the word ” penalty ” has to be read, as being the penalty specified in Section 28(1) of the Act, then the disqualification in question cannot be imposed in the present case. The manner in which the Act of 1961 seems to be intended to operate is that if there is a default in relation to an assessment under the Act of 1922, the corresponding penalty may be imposed under the Act of 1961. In other words, if the default is as mentioned in Section 28(1) of the old Act, then the corresponding penalty under Section 271 of the new Act may be imposed. But, does this mean that the disqualification under Section 288(4) of the Act of 1961 can also be imposed. The wording of Section 288(4) as I have already quoted is, ” no person … on whom a penalty has been imposed under this Act …” According to counsel for the department, it is clear that the penalty” has been imposed on the petitioner under the Act of 1961.
14. He makes his submission as follows : The petitioner made a default under the Act of 1922, He concealed particulars of his income. This was an infringement of Section 28(1)(c) of that Act. By the time the assessment was completed, the Indian Income-tax Act, 1922, had been repealed by Section 297(1) of the Income-tax Act, 1961. Thereafter, the penalty could only be imposed under the prevailing law which was in force on the date of the completion of the assessment, i.e., the Act of 1961. By virtue of Section 297(2)(g), the penalty had to be imposed under Section 271(1)(c) for the same default which was mentioned in Section 28(1)(c). After this penalty had been imposed, provisions of Section 288(4) came into operation and the only question that had to be asked was I Is the petitioner a person against whom a penalty has been imposed under the Act of 1961 ? If the answer is yes, then the petitioner is a person covered by Section 288(4) and the disqualification envisaged by that provision can be imposed on the petitioner. The basis of this entire submission is that the penalty has been imposed on the petitioner under the Act of 1961,
15. On the other hand, the submission on behalf of the petitioner is that the words ” such penalty “, occurring in Section 297(2)(g), restrict the operation of that provision only to those penalties or infringements which could be penalised under the old Act. Thus, even if Section 271(1)(c) was applicable in relation to the default of the petitioner by reason of these words, it did not mean that a further disqualification could also be imposed oft the petitioner because such disqualification would really be adding additional words to Section 297(2)(g). In other words, it is contended on behalf of the petitioner that Section 297(2)(g) is an enabling section which enables the
penalty under the new Act to be imposed, but not the disqualification under the new Act.
16. Mr. A. K. Sen, learned counsel on behalf of the petitioner, has contended that Section 297(2)(g) should not be interpreted in such a way as to give a retroactive application to Section 288(4) of the Act. He submits that Section 288(4) is meant to be prospective. Section 297(2)(g), however, creates a legal fiction. The wording of Sub-section (2) of Section 297 suggests that the Act of 1922, even though repealed, is to be kept alive for certain purposes. In regard to penalty proceedings it provides that if the assessment under the old Act is completed after the new Act has come into force, the penalty may be imposed under the new Act, but it does not provide that the disqualification created by the new Act will also be imposable. He submits that this is a legal fiction which should not be amplified in this fashion by interpretation alone. Reliance has been placed on Karimtharuvi Tea Estate Ltd. v. State of Kerala, .
and various quotations which appear therein from other judgments of the Supreme Court. For example, in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., . the following is relied upon :
” On the merits, the appellant had very little to say. He sought to contend that the proviso though it came into force on May 5, 1946, was really intended to operate from April 1, 1946, and he referred us to certain other enactments as supporting that inference. But we are construing the proviso. In terms, it is not retrospective, and we cannot import into its construction matters which are ad extra legis, and thereby alter its true effect.”
17. It is contended that by extending the operation of the provisions of Section 297(2)(g) of the Act of 1961, so as to apply to the disqualification contained in Section 288(4) of the Act of 1961 also, an effect not contemplated by the statute is being achieved. The only intention was that the penalties envisaged in the Act of 1922 could be imposed with or without modifications as contained in the Act of 1961. But there was no intention also to bring about the imposition of a disqualification which was not in existence under the old Act.
18. Another quotation from Commissioner of Sales Tax, U. P. v. Modi Sugar Mills Ltd., .
is also relied upon. It reads :
” A legal fiction must be limited to the purposes for which it has been created and cannot be extended beyond its legitimate field. ”
19. It is contended that the legal fiction created by Section 297(2)(g) only enables a penalty under the new Act to be imposed in corresponding fashion, e.g., for Section 28(1)(c) of the old Act, the penalty under Section 271(1)(c) can be applied, but the additional disqualifications contained elsewhere in the new Act were never intended to be within the field or operation of Section 297(2)(g).
20. Then reference has been made to Braithwaite and Co. (India) Ltd. v. Employees’ State Insurance Corporation, . In that case it was held in relation to a question arising under the Employees’ State Insurance Act, 1948, as follows:
” It appears to us that the High Court committed an error in applying this legal fiction, which was meant for Sections 40 and 41 of the Act only, and extending it to the definition of wages, when dealing with the question of payment in the nature of Inam under the Scheme started by the appellant. The fiction in the Explanation was a very limited one and it only laid down that wages were to be deemed to include payment to an employee in respect of any period of authorised leave, lock-out or legal strike. It did not lay down that other payments made to an employee under other circumstances were also to be deemed to be wages. A legal fiction is adopted in law for a limited and definite purpose only and there is no justification for extending it beyond the purpose for which the legislature adopted it. ”
21. This judgment also cited Bengal Immunity Co. Ltd. v. State of Bihar, :
” Whichever view is taken of the Explanation, it should be limited to the purpose the Constitution makers had in view when they incorporated it in Clause 1. It is quite obvious that it created a legal fiction. Legal fictions are created only for some definite purpose. ”
22. On the basis of these citations, Mr. Sen urges that the purpose of the legislature in enacting Section 297(2)(g) was only to provide an alternative after the repeal of the Act of 1922, By Section 297(1), the Act of 1922 was repealed and by Section 297(2) and its various clauses, provision was made for different contingencies that might arise in relation to pending or future cases under the old Act. By Clause (g) the legislature intended that as far as the penalties were concerned, if the assessment was completed after 31st March, 1962, the penalties under the new Act should be imposed. As the legislature has not made provision for imposing any other disqualification by this provision, it is not open to the court or authorities concerned to extend the same, merely by reading the provisions of Section 288(4).
23. Another Mibmissiou made by Mr. Sen is that the court should lean against the retroactive operation of Section 288(4) as far as possible. For this purpose, certain passages have been cited by him. He has referred to Craies on Statute Law, 6th edition, page 86 :
” In Simms v. Registrar of Probates, [1900] A.C. 323, 335.
Lord Hobhouse, giving the advice of the Judicial Committee, said: ‘ Where there are two meanings, each adequately satisfying the meaning (of a statute), and great harshness is produced by one of them, that has a legitimate influence in inclining the mind to the other. ”
24. Further, another passage reads :
” Therefore, if a too literal adherence to the words of the enactment appears to produce an absurdity or an injustice, it will be the duty of a court of construction to consider the state of the law at the time the Act was passed, with a view to ascertaining whether the language of the enactment is capable of any other fair interpretation, or whether it may not be desirable to put upon the language used a secondary, or restricted meaning, or perhaps to adopt a construction not quite strictly grammatical.”
25. He has also cited certain passages from Maxwell on the Interpretation of Statutes, 12th edition. I may quote the passage cited at page 204. It reads thus :
” Quite often the judges rely on what they regard as a ‘ sensible’ or ‘ common sense ‘ interpretation in order to reach the true meaning of a statute. The Affiliation Proceedings Act, 1957, for instance, refers to an application by ‘ a single woman who is with child, or who has been delivered of an illegitimate child.’ The Division Court has held that the phrase ‘ single woman refers to the woman’s condition at the time of the application, not the time of birth. This was ‘ fairly good common sense, because the question of whether the woman sought to receive money for the support of the child must surely depend on her circumstances at the time when she seeks the order.”
26. He has also referred to page 208, where it is said :
” Whenever the language of the legislature admits of two constructions and, if construed in one way, would lead to obvious injustice, the courts act upon the view that such a result could not have been intended, unless the intention to bring it about has been manifested in plain words. ‘ If the court is to avoid a statutory result that flouts common sense and justice it must do so not by disregarding that statute or overriding it, but by interpreting it in accordance with the judicially presumed parliamentary concern for common sense and justice ‘.”
27. He has then referred to other passages relating to the retrospective operation of statutes and has referred in a passage appearing at page 215. It reads as hereunder :
” Upon the presumption that the legislature does not intend what is unjust rests the leaning against giving certain statutes a retrospective operation. …………They are construed as operating only in cases or on facts which come into existence after the statutes were passed unless a retrospective effect is clearly intended. It is a fundamental rule of English law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication.
The statement of the law contained in the preceding paragraph has been ‘ so frequently quoted with approval that it now itself enjoys almost judicial authority.’ ”
28. It is contended that the purpose of enacting Section 288(4) was not to make the disqualification retroactive in the case of a person appearing before the income-tax authorities. It was meant to be a deterrent for income-tax practitioners in the future, and not as a disqualification for past concealments. By making Section 297(2)(g) of the Act also applicable to Section 288(4) merely by reason of the words ” imposed under this Act” appearing in that clause, the effect is to make Section 288(4) retrospective which is a construction which the court should lean against if possible.
29. After giving my most anxious consideration to the submissions made in this behalf, I am of the view that the following words occurring in Section 288(4), ” on which a penalty has been imposed under this Act other than a penalty imposed on him under Clauses (i) and (ii) of Sub-section (1) of Section 271 ….”, mean a penalty which is imposed lor an actual infringement of the Income-tax Act of 1961, and not a deemed infringement of that provision brought about by the fiction created in Section 297(2)(g). At the time the petitioner concealed his income there was no Act of 1961. The most that could happen to the petitioner was that he could suffer the consequences provided for in the Act of 1922. By reason of the repeal of the Act of 1922, the penalty which could formerly be imposed under that Act, could be imposed tinder the Act of 1961. This is provided for by Section 297(2)(g); but to carry this fiction further and to say that the penalty has in fact been imposed under the new Act of 1961, and thereby to bring into application Section 288(4) seems to do violation both to the language of the provision and the intention of the legislature. The words, ” may be initiated and may be imposed”, occurring in Section 297(2)(g), mean the penalty which could have been imposed under the Act. If this provision was not there, the penalty could not have been imposed under the new Act. But, the word “such” occurring before “penalty” seems to qualify the nature of the penalty that may be imposed under the new Act. The intention appears to be that the penalty alone can be imposed and nothing more. In other words, the default of the petitioner related to Section 28(1)(c) of the Act of 1922. By reason of the repeal of the Act of 1922, and the enforcement of the Act of 1961, the same default, i.e., the default now to be found in the corresponding Section 271(1)(c) in the new Act can be penalised as
provided in Section 271(1)(iii) of the Act of 1961. This does not, in my view, enable that further disqualification to be imposed. Such a construction would not be legitimate in view of the words ” such penalty “.
30. This matter may be viewed from a slightly different angle. The words occurring in Section 288(4) are “a penalty has been imposed under this Act”. Has a penalty been imposed under this Act on the petitioner ? The answer is yes, but the penalty has been imposed under this Act not because of an infringement of this Act but because of an infringement of a previous Act. Let us assume for the moment that there was no Section 28(1)(c) in the old Act. Then obviously the penalty could not have been imposed under Section 297(2)(g) because the words ” such penalty ” refer only to a penalty for an infringement of law which was also an infringement at the time the default was committed. Therefore, in reality, the petitioner has suffered the penalty for a default imposed by the 1922 Act, and not by the 1961 Act. The words of the Supreme Court judgment in Jain Brothers v. Union of India are : ” The assessed would be liable to a penalty as provided by Section 271(1) for the default mentioned in Section 28(1) of the Act of 1922 if his case falls within the terms of Section 297(2)(g).”
31. As I read the provisions of the two Acts and the provisions of Section 297(2)(g), in order that a penalty may be imposed under the new Act, the act or omission committed by the assessed must be one which is initially a default under the Act of 1922, before it can be penalised under the Act of 1961. Hence, the penalty is really imposed by reason of the Act of 1922 and not by the Act of 1961. Read in this way, the words “penalty imposed under this Act” occurring in Section 288(4) can be read to be limited only to cases where the penalty is imposed for a default of the provisions of the Act of 1961 and not for a deemed default. I thus construe the provisions of the two Acts to mean that the disqualification in Section 288(4) can only be imposed on a person who commits a default, after the Act of 1961 has come into force and not before.
32. I have already dealt with the question of vires raised in short. As I am accepting the petition on the second ground raised, I am not saying anything further on the validity of the provision, except to point out the absence of guidelines in the Act concerning the extent of the disqualification which has to be imposed. In view of my decision on the second point, I accept this petition and quash the disqualification imposed on the petitioner. However, I leave the parties to bear their own costs.
